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Aggregate Information and Organizational Structures

Gorkem Celik (), Dongsoo Shin () and Roland Strausz ()

No 105, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: We study an organization with a top management (principal) and multiple subunits (agents) with private information that determine the organization\'s aggregate efficiency. Under centralization, eliciting the agents\' private information may induce the principal to manipulate aggregate information, which obstructs an effective use of information for the organization. Under delegation, the principal concedes more information rent, but is able to use the agents\' information more effectively. The trade-off between the organizational structures depends on the likelihood that the agents are efficient. Centralization is optimal when such likelihood is low. Delegation, by contrast, is optimal when it is high.

Keywords: agency; aggregate information; organization design (search for similar items in EconPapers)
JEL-codes: D82 D86 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hrm, nep-mic and nep-ppm
Date: 2018-06-27
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